E-mail services for small companies are undergoing a big upgrade as competition for online users heats up among large technology firms.

Companies such as Google Inc., AOL Inc., Microsoft Corp., and Facebook Inc. see small business as a lucrative market, so they are battling to add features tailored to its needs. As a result, small-business e-mail services getting better quickly. Be warned: Installation can be a struggle and interfacing with your existing business e-mail infrastructure may take some effort and technical know-how. But with the proper approach, most firms can manage their e-mail more efficiently, save time and add to the bottom line.

I've tested the top free online e-mail products for small firms, plus Facebook's new Messages service, which some are touting as a collaboration tool for small groups inside a small business. Here's what's new, what's good and what's bad for each:

Microsoft Live Hotmail

What's New: Microsoft recently placed its e-mail service Windows Live Hotmail in its growing suite of online business tools called Office Web Apps, a stripped-down version of Microsoft Office. Hotmail had been among the first free Web-based e-mail tools for consumers.

What's Good: Hotmail now offers surprisingly powerful, if basic, business features. The e-mail inbox and folder layout is clean and easy to understand. It offers essentially limitless storage, though Microsoft will notify you if your usage spikes which will require some small adjustments in your settings. A time-saving Sweep feature allows all the information in a folder to be moved at once. Hotmail also added a second e-mail domain name, live.com, which businesses can adapt to easily -- yourfirmname@live.com looks much more professional than yourfirmname@hotmail.com.

What's Bad: Support is limited for advanced e-mail functions that allow for the collaboration found in competitors like Google Apps Mail, which supports direct integration of everything from documents to calendars. Hotmail does not sync well with outside e-mail software other than Microsoft's Outlook. If you are using other collaborative tools like 37signals LLC's Basecamp to manage tasks, projects and due dates, integration can be clumsy. Plus, the limited features may feel restrictive quickly. For example, tagging, which involves assigning keywords to identify and organize emails, is limited. Overall, a growing business is likely outgrow Hotmail quickly.

Google Gmail

What's New? Google takes innovating its e-mail services seriously, so Gmail is under almost constant innovation. The most recent big addition is the Priority Inbox option, which attempts to make an intelligent guess as to which messages you should read first. The company also has begun to offer new ways to manage e-mail conversations and supports a online applications area called Google Apps Marketplace that hosts direct integration with outside software tools.

What's Good: There's no denying the power of Google's incremental approach to improving e-mail for small businesses. Priority Inbox, once you get the hang of marking messages as important, can save time spent reading e-mail. Also, Google's improved folder options can lead to more efficient message routing, and upgrading to Google's business e-mail offering, Google Apps Mail, can support company domain names. That means you can do business on Google as you@yourcompanyname.com.

What's Bad: Google's approach can be complex and oppressive for the average small firm. Long e-mail conversations are to hard to manage, as is figuring out how to use add-on features like chat and calendar that live on Gmail homepage. Also, the offline version of Gmail can be particularly clumsy. Gmail works well only when you are on the Web.

AOL Mail

What's New: Recently rebuilt from the ground up and labeled Project Phoenix, AOL's new e-mail service features improved layout, better integration with tools like Facebook and better search. The service is currently in a by-invitation-only beta testing phase, but as with most Web-based products in beta, the firm release date is not known.

What's Good: With this upgrade, AOL has become probably the most attractive and easy-to-navigate e-mail client of the Web-based big three. The home page is clear, a great relief to tired eyes. Lengthy conversations are easy to read. The “Quick Bar” across the top of the screen lets small teams in your firm communicate quickly across e-mail, chat and SMS. And finding older e-mails with the search function is reliable.

What's Bad: AOL Mail offers only limited support for some business functions. For example, business domain names, such as you@yourcompany.com, are not supported. In initial testing, AOL Mail's beta version limits how other tools such as LinkedIn work with it, and it isn't clear how the final product will integrate with other applications. Though the final verdict must wait for the full release, expect that the new AOL Mail to probably cramp even a moderately growing firm.

Facebook Messages

What's New: Facebook recently began a limited-release test version of a new upgraded Messages service. The product combines standard social Web messaging, commenting and Wall Post features, with more traditional mobile short messaging tools and an @facebook email address.

What's Good: Facebook email, such as yourbusiness@facebook.com, might be an intriguing way to interact with customers. If you have an active Facebook company account, sign up for the service, claim your company email address and start tinkering to see if your customers react to being contacted via Facebook. I have found it an effective marketing tool, you may as well.

What's Bad: Facebook Messages isn't appropriate for interacting with employees or vendors. It's far too easy for an email conversation to wind up as a Wall post that then may get broadcast out as a text message. Imagine the potential for damage if a company email winds up on your company Facebook Wall. Facebook as a tool is all about connecting groups and broadcasting a single message out across that group. It isn't about the step-by-step process of engineering a solution to a business problem. As attractive a tool as Facebook might be for groups of friends to communicate, it really has no place inside a business. Leave your communication with staff and suppliers to traditional email and phone.